A lot of people dream about quitting their day job to pursue a different opportunity. Whether you want to become a stay-at-home parent or start your own business, you need to be prepared for what happens when your paycheck stops. No matter what you do after you quit your day job, there are specific items to review whether you are financially ready to hand in your notice.
What's Your Plan?
Quitting your job requires planning. If you just get up one day and quit your job, you are going to make life difficult. Before you quit your job, start planning. What do you want to do after you quit? Where are you going to go? Who is going to support you? Where is the money to pay bills going to come from?
These are all simple questions, and they could come with simple answers. Take some time to plan out your release from the nine to five. When you make a plan before you quit, it tends to take the stress away. No matter how confident you are in your plan, make sure you come up with a contingency.
What Does Your Financial Picture Look Like?
Money is typically a motivating factor in having a day job, obviously. Depending on the reason you are quitting your job, look deep into your financial picture. How much money do you have available? How much money are you making each month to cover your expenses? Are you on track for retirement? Are you saving any money each month? How much debt do you owe? These basic questions will help you understand where you land financially.
Pay Off Your Debt
Most people have some form of debt, whether it's from credit cards, personal loans, mortgage, car loans, student loans, medical debt, or anything else. When debt hangs over your head, it can cause you to be afraid to leave your job.
Before jumping ship, come up with an actionable plan to pay off your debts. Start with the highest interest debts and work down. This is called the debt avalanche. Most of the time, this will require you to tackle your credit cards first and then go from there. Some people don't mind holding mortgage debt, and I would leave that for last. If you can pay off all of your consumer debt first, that would be a great step forward.
As you erase your debt over time, your financial picture will become clearer and you will be able to pursue your dream of quitting your day job.
Save Up at Least Six Months of Expenses
I cannot stress enough how important it is to have money saved up. No matter what you plan on doing outside of your day job, you need to have liquid funds available. Emergencies pop up all of the time, and you need to be ready for them. If you don't have any savings, then get started immediately. I have developed a method to help you pay off debt and save at the same time. I used this method for four years while paying off my credit card debt. I know it works, and it can help you learn how to save.
While you may think saving up six months worth of current expenses will be tough, it will be easier to already have it socked away before quitting your job. It goes with the old adage of "it's easier to find a job when you have a job." I like to think it as "it's easier to save money when you make money." Saving up so much will give you a financial emergency blanket to help you through the tough times.
Lower Your Current Expenses
Quitting your job is a great time to think about your current expenditures. If you are paying a lot of money for cable, think about downgrading your package. If you have a high cell phone bill, move to a lower cost carrier.
Taking the time to review all of your expenses can help you see how much you are really spending. Many of us get complacent with our bills. We just pay them each month without thought. I have started to review my bills every quarter to see if I can reduce them. This is especially true with my car insurance bill. I like to get competing quotes every renewal period to see if I am paying the best price.
Starting a Business? Walk Before You Run
"Side hustling" refers to how people make extra money on the side, outside of their day job. Many people have started successful businesses from their side hustles. I am a huge advocate of the side hustle, which some call a sidepreneur.
The premise of this is you start learning the ropes before you jump all in. If you eventually want to start a business, this is the best way to get started without putting all of your eggs in one basket. Start side hustling to test your business idea. If it goes well, then you know you can quit your job. If it doesn't work out, then you know your business idea needs some tweaking.
I always encourage people to follow their dreams, no matter what they are. On top of that, I encourage those wishing to quit their jobs to have a backup plan. Always take the time to plan your exit. Don't just jump in with both feet without checking the water first.
Grayson Bell is a freelance writer and founder of Debt Roundup, a personal finance blog helping people fight debt and grow wealth. Through his own battle with debt, he has learned different ways to pay off and beat debt.